QUESTION: I recently read that the importance of business plans is overrated. To start a homebased business, do I need to have a business plan?
ANSWER: We salute you for both taking to heart what you read, while at the same time, not taking something in writing at face value. We have long held that the value of a business plan for a start-up homebased business is to provoke the thinking you owe yourself before risking time, money and energy on a new venture. Now the research is in.
Peter Economy, the co-author of Lessons From the Edge (Oxford University Press), interviewed 75 entrepreneurs whose companies were producing more than $1 million a year before the owners reached age 40. "They said [if they had to do it over], they would not have done a business plan," says Economy. "They expressed the belief that it's better to dive in than to plan every move. The only time they needed a formal business plan was when they went to get outside financing or funding."
Similarly, David E. Gumpert, author of How to Really Create a Successful Business Plan (Lauson Publishing), has a written a new book, Burn Your Business Plan! (Lauson Publishing). Gumpert surveyed 42 private investors and found half had invested in companies without seeing a business plan, and nearly two out of three said a business plan is less than critical to their evaluation of a business. Gumpert examined academic research and concluded that a formal business plan can actually hamper an early-stage company's chances of success.
Are business plans just artifacts of the pre-Internet era, entombed in business school curricula? For most of the 50-page plans promoted in these venues, the answer is yes. But learning all you can about your industry and your market remains vital, so before you start any business, you should be able to answer these questions:
- What, specifically and succinctly, is your business? Are you, for instance, renting wedding gowns, selling sporting goods or providing recreational activities for seniors?
- Who is most likely to buy what you will be selling?
- Why would people buy what you offer? What advantages does your product or service offer that people can't already get from the marketplace?
- What are the best ways for you to reach your target customers?
- What tasks do you need to do first to get underway? If it's wise "to do first things first," what is first? And what is next? And after that?
- How will you price what you offer, and what do you expect your costs and revenues to be?
It helps to put your answers in writing, but you can do this on the back of a napkin, in a notebook or on a computer. If you prefer a more structured method, consider the one-page approach, available as software at www.onepagebusinessplan.com or in the book The One Page Business Plan (One Page Business Plan Co.) by Jim Horan.
What's most important once you decide to start a business is to be active. As we say in Why Aren't You Your Own Boss? (Prima Publishing), the key is to always move forward toward your goal, and to refuse to allow obstacles-like feeling blocked by needing to write a business plan-to get in your way. Before you go to bed each night, set at least one goal to accomplish the next day that brings you closer to starting your own business. Write it down in a notebook, and when you accomplish it, cross it off your list.
Paul and Sarah Edwards are the co-authors of 15 books, including Working From Home.